Process Power

The lack of effective process is usually not the reason why business fail. But it is the reason why business do not excel. We often consider the constraints to excellence are the traditional lack of money, lack of customers and the usual "dog ate my homework" stuff. Not that these do not impact performance but often may be the symptom not the cause.

The problem with process be it in big and small business is that it is usually considered to be another form of rule, another way that disengages creativity and free spirited behavior. It is the proverbial root canal to achieving anything around here.

That been said how can we promote the "process power" aspect to this scenario.

Well there has to be a story about everything. For some of our followers you know we mostly write about things that happen in the field.

John is a real go getter his business unit has recently been separated from the mother ship  and now face the daunting task of having to do everything for themselves. John shoots first then has a quick look to see the damage done and moves on to the next target.  Brian on the other hand is a team member who does things a little different. He measures twice sometimes three times before he "cuts".

John sales are extraordinary with a top line that reaches the tallest cloud. Brian sales are good but no one can be a John when it comes to sales. There are many other characters in this saga but for the sake of not overextending my limited typing skills we will stay with John and Brain.

Like with all fairy tales the story has to have a twist. I think most of you by now know where this is going. John perfect top line does not always translate in a pretty bottom line. When it comes to executing these sales something inevitably goes wrong. John has ordered the wrong materials (which he is not supposed to do in the first place), the sub contracting crew bring the wrong equipment, and the stuff hits the fan one thing after the next. Brian lands up having to fix things with a fire extinguisher that is bigger than the truck that he drives. Brian turns on the fire hose before he brushes his teeth in the morning.

Its not there is no process in fact the process are reasonably well established. What happened or happening behind the scenes:

• There was no process buy in
• Processes established in many instances were cumbersome

• Process adherence were considered by some a great thing as long as it is someone else job.

The big gig is the process buy in. It is amazing in that it fixes pretty much every thing else.

Conducing a PROCESS SNAP SHOT meetings that are short (no longer than a hour) targeted at specific activities are a great way to gain buy in especially if you have a bunch of ADD (Attention Deficit Disorder we often refer it to PDD Process Deficit Disorder) people in the group.

The secret to these snap shot meetings is to present the WHY. The traditional approach is to explain the process and what people have to do to adhere.

Starting with the why provides the ability to people to participate in the solution. In John case the why was formulated based on making the customer happy. To do so each job required the right people based on the job complexity, the right equipment and all the materials required to perform. Most simple when you are only doing one job when you have to do this with hundreds of jobs the simple becomes complex.

The snap shot meeting need not try to resolve all the issues but it must be focused on at least one key activity. In johns case the activity could be materials acquisition. The secret is to present alternative ways of doing things before the current or required process is reinforced.

John could be the person that does the ordering however this would mean that he would have to ensure that the items are delivered at the right place in the right quantities with the  components in place.

Demonstrating how this would impact John life may change the way that John feels about what needs to be done opening the door to gain the buy in on what the right way should be.

I know that after reading this may think that it seems so obvious but the reality is that so few organizations focus on effective process. Fewer revise and review process effectiveness on an ongoing basis.

Please make the snap shot meeting part of your agenda within other meetings that you hold. By focusing on one activity you good outcomes in short periods of time.

By Andre Gien

Andre and his team provide business improvement programs using your financial statements as the foundation for discovery and opportunity identification.

We deliver business performance as measured in your financial statements that improve profit cash and returns. Linking strategy, people and process to financial statement outcomes.   

Financial Statement and Sales Analysis Management Tools: The Art of Discovery

Financial Statement and Sales Analysis Management Tools: The Art of Discovery

The Art of Discovery

Good discovery produces better opportunities. The ability  to  define the root cause is an  art that is not widely taught or even promoted.

When we have a precisely defined  problem, solving it is easy.  When the problem is more  complex we frequently only tackle the symptoms and not the root cause. 

Sales performance at one of our clients was stable but not growing. Their solution to  stimulate increased sales was an elaborate loyalty program with a substantial rebate  attached based on volume purchases.  Volume growth occurred but was relatively small.   A negative consequence was the rebate system created significant margin destruction.

They had worked on the wrong problem or symptom of  a more deeply hidden issue.  This  business has a deep product range and most of their customers buy a portfolio of these  products. The real problem was they were missing the opportunity to cross sell- their  performance was anemic-  only 10% of the top customer base bought more than 5  different products. 

Now how easy is this to solve.  Once this was understood the sales teams promoted more  of their range and increased revenues without destructive rebates. 

Our research shows  less than 10% of medium sized business (between $10m and $500M)  have some form of discovery culture in place, such as  a six sigma problem solving  methodology.  The interesting fact is that they mainly focus on problems.  We only found  1 instance where discovery was focused both on problems and successes.

Why do we not consider success to be a focal part of our discovery process?  I was  participating in a "lost contract review meeting" that analyzed in depth the reasons for  the loss. After the meeting I asked if I could participate in the "win contract review  meeting" . I will leave the answer to your imagination.

Mostly we have a belief system that successes will continue on their own and we default  to solving problems (or more commonly their symptoms).

Consider the discovery culture in your organization.

• How is discovery encouraged
• Do you have effective discovery tools in place
• Are your teams working on root causes or are they addressing symptoms
• Do you try and learn from and propagate your successes
• Do the same problems recur (a sign you are working on symptoms)

 

5 Chapters to the Financial Statement Story

Looking for an easy, fast yet powerful way to explain your performance using your financial statements? The 5 chapters could be the way to go

People prefer the story to the clinical number this number that. Yes there is a story and  as you will see each chapter is dependent and linked to the other chapter so you have to cover all the chapters to get the full picture.

The 5 chapters to your story integrates the impact of the income statement and the balance sheet in a way that all people can easily understand, engaging discovery that creates opportunity to improve profit cash and returns

For the sake of simplicity we refer to the income statement as the way you make money. The balance sheet is referred to the way you create wealth.

The 5 chapters integrate the way we make money with the way we create wealth establishing how we ultimately drive sustainable value.

Chapter 1 is all about how effectively we grow revenue, usually measured as a growth %. 

Chapter 2 reflects on how we translate growth into superior profitability measured as the amount of profit derived from each revenue $

Chapter 3 now connects the balance sheet with specific focus on working capital, measured by adding receivables plus inventories and or work in progress less payables. The sum of these gives us the total working capital at the measurement date. Working capital is divided into revenue to attain what we call working capital per $ of revenue. This is the amount of working capital required to fund each revenue $.

Note: The connection between chapter 2 and 3, they are both based on the revenue $ allowing powerful insight as to how revenue influences both the income statement and the balance sheet.

 Chapter 4 is all about the King. Correct cash is King which is the OUTCOME of the previous 3 chapters. Thus Cash = have we converted our growth into superior profitability combined with the rigor of sound working capital management (Cash = Chapter 1=2=3)

Chapter 5 is the value creation measure called ROCE or Return on Capital Employed we will do some more work on this measure later. In essence all we are looking for is the ability to improve the profit contribution per $ invested in the business. ROCE = Chapter 1+2+3+4

Now we are in a position to tell our story. We grew our revenue by 23%, resulting in a decline in our profit contribution from 12 cents in the revenue $ to 11 cents. In addition our working capital absorption rate increased from 14 cents to 18 cents per revenue $ producing an operating cash flow of $208.

{If you wish please comment on the operating cash flow, as a manager would the outcome of $208 be acceptable and why. As a hint compare operating profit to operating cash}

This leads us to question the quality of our revenue growth.

Think of the wealth of discovery that can result from this story. Ranging from what created the growth to how profitable was that growth, to how are the new customers behaving in relation to our existing customers and so on. The discovery considerations are endless. 

With good discovery we often gain insight to powerful opportunities that can lead to profit cash and return improvement.

Hopefully the 5 chapters provide a different way to use your financial statements to tell your story. We find this process very effective with our clients in that its takes the accounting out or the financials and makes it more oriented to how we think about our business. Our clients love the story embellishing the case and effect often leading to some very innovative solutions.